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1385SEC Allows Mergers of Affiliated ETFs

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  • Baker, John
    Oct 2 3:58 PM

      The Securities and Exchange Commission’s Division of Investment Management has issued general guidance allowing the merger of affiliated exchange-traded funds.  IM Guidance Update 2013-06 (Sept. 2013).  The matter had been in doubt, because the exemptive orders allowing ETF operation provide that an ETF will issue and redeem its shares solely in creation units in transactions with authorized participants, and a merger would not meet this requirement.  The guidance states that the staff would not recommend enforcement action if two affiliated ETFs merge, so long as the merger meets the requirements of Rule 17a-8 and all applicable disclosure, registration, shareholder approval, and other requirements.


      The staff guidance relates solely to a merger of two affiliated ETFs, and it warns that the staff may take a different view with respect to other types of corporate reorganizations.  The guidance mentions as an example a traditional open-end investment company merging, or converting, into an ETF; note that such a merger or conversion would result in the mutual fund’s shareholders losing the redemption right they had when they purchased.  The guidance states that it expresses no view with respect to any other questions that such transactions may raise, including the applicability of other federal or state laws, rules or regulations, including Regulation M, or rules or regulations of any self-regulatory organization.


      The guidance was provided in response to a request for no-action relief by two Stradley Ronon partners, Michael Mundt, whose office is three doors down the hall from me, and Michael Mabry in our Philadelphia office.  Instead of issuing a no-action letter, however, the staff decided to release more general guidance.  The guidance is available online at






      John M. Baker <JBaker@...>

      Stradley Ronon Stevens & Young, LLP http://www.stradley.com

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      Washington, DC 20036


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      FundLaw Listowner http://groups.yahoo.com/group/fundlaw